Thursday, May 14, 2009

It wasn’t just Ken Lewis with his arm twisted behind his back. In mid-October, the Treasury told a panel of 9 major banks that they had to either voluntarily take capital infusions or they would be tied down and given them anyway.

Zillow reports 74% of homeowners believe their home will hold or gain value over the next 12 months and 63% believe home values in their markets will increase or stay the same. One third of the group said they would be somewhat likely to put their homes on the market in the next 12 months if the real estate market started to turn around – in other words, there is substantial shadow inventory waiting to hit a bid. Homeowners in the West seem most aligned with reality, scoring a 2 on Zillow’s “Misperception Index” (zero is reality), Northeastern perception is the most out of whack, scoring an 11. Skew: 92% of this survey group also believe in Santa Claus, the Easter Bunny and the full faith and credit of the United States Government.

IBM said 2010 earnings of $10-11 are likely.

Phoenix Solar indicated large scale solar projects are getting back on track. In related news, the head of China’s National Energy Administration’s New Energy Department said large scale PV projects will not be eligible for subsidies – they are likely to promote feed-in tariffs instead.

Panel demand is showing signs of decline, according to BenQ. Not surprising as the industry has practically doubled production sequentially. Sony blowing up isn’t going to help the case against this theory. Don’t like Corning here.

Speaking of Sony, I walked through their store yesterday. Their prices are idiotic. Everything they sell is twice the going rate of comparable products. I know Madison Avenue rent is high but come on -- $1000 for a netbook? It doesn’t even have a real keyboard. They’re wildly out of price position in every market they serve and they’re losing all their key markets to competition – music players to Apple, video games to Nintendo, televisions to Samsung. Sony seems like they’re in serious long-term trouble.

Wednesday, May 13, 2009

Applied Materials reported better revenue, worse orders, guided to a midpoint of revs in-line with consensus and suggested orders will be up next quarter. Typically these stocks trade on direction of orders. At 2* book, Applied has already gravitated higher in anticipation of some recovery. Watch the stock for stability around $11. Below there is trouble.

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Intel said business is tracking better than they expected for next quarter and the worst is behind us. A month ago when they reported, the company had declined to give guidance but had said they were “planning” for flat business. This gives credence to the Intel was low-balling argument. Furthermore, with most PC builders (Compal, Quanta, Wistron) suggesting 15-20% growth for the June quarter, Intel’s guidance seems subdued on a relative basis. Their comments should not be too surprising. Sounds like you should buy Intel, right? Numbers are too low! Maybe. On the other hand, Intel’s sales are stagnant over the long-term and the stock has a premium growth multiple here. Even if estimates wind up being 70 cents instead of 53 cents where they are now for the year – do you want to own this stock trading at over 20* earnings? I think you have to think Intel is going to grow at over 20% over the next several years to make that bet… and I don’t see how that would happen.

The PC is becoming the television and the economics there will follow. Who was the most successful producer of cathode ray tubes? You don’t know? EXACTLY. As the internet continues to become the dominant usage for computing devices, the importance of companies like Microsoft and Intel will fade. Unless they can make themselves relevant to an internet-based computing world, they will slip into obscurity.

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Elpida Memory reported. They changed their depreciation schedule from 5 years to 9 years, which averted triggering financial covenant defaults. Extremely deceptive… and concerning.

Tuesday, May 12, 2009

STEC finally reports a big number. Consensus was 59 mil and 11 cents – they report 63.5 mil and 17 cents. Gross margins were the big surprise, rising 7.5% sequentially to 39.8%. The company indicated gross margins on ZeusIOPS, the drive used by their major OEMs for enterprise solutions, were above 40% and will head toward 50% next quarter. Guidance of 68-70 mil and 20-22 cents is well ahead of consensus of 59 mil and 10 cents. Higher margin enterprise solid state drives will account for more than 50% of business in the second quarter and DRAM products, which were 100% of business a couple of years ago, were 12% of revenues this quarter and will continue to shrink.

Weisel throws out 94 cents for this year and an aggressive $1.45 for next. The stock is up 30+% pre-opening.

I have to say, I’m a little confused about their margin structure. They said they have long-term procurement deals with their suppliers to buy specialized 16mb SLC NAND at fixed prices that are not tied to contract. It’s extremely unusual if that’s the case. I’d like to better understand their deal.

STEC indicated they see no firm competition in the enterprise SSD space and don’t expect any for the rest of the year at least, though clearly competitors will try to encroach over the coming quarters. Dell had designed STEC into their higher end Mini and it sounds like that business will fade to zero next quarter, presumably replaced by Samsung. The good news there is the bears can’t use it as a negative catalyst anymore once Dell is no longer a customer.

Despite the rollercoaster ride, I still own some, though not in the size I did at lower prices.

I keep meaning to write something up about the stress tests but they seem so bogus I don’t want to lower myself to respond to them. It’s worth pointing out the WSJ reports the government succumbed to pressure from banks to understate bank vulnerabilities to stress – which begs the question: what was the point besides to hoodwink investors?